Correlation Between Northern Lights and Zillow

Can any of the company-specific risk be diversified away by investing in both Northern Lights and Zillow at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Northern Lights and Zillow into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northern Lights and Zillow Group, you can compare the effects of market volatilities on Northern Lights and Zillow and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Northern Lights with a short position of Zillow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and Zillow.

Diversification Opportunities for Northern Lights and Zillow

0.82

Correlation Coefficient

Northern Lights Zillow

Very poor diversification

The 3 months correlation between Northern and Zillow is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Zillow Group Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zillow Group and Northern Lights is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Northern Lights are associated (or correlated) with Zillow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zillow Group has no effect on the direction of Northern Lights i.e., Northern Lights and Zillow go up and down completely randomly.

Pair Corralation between Northern Lights and Zillow

Given the investment horizon of 90 days Northern Lights is expected to generate 4.96 times less return on investment than Zillow. But when comparing it to its historical volatility, Northern Lights is 2.98 times less risky than Zillow. It trades about 0.06 of its potential returns per unit of risk. Zillow Group is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,544  in Zillow Group on March 10, 2023 and sell it today you would earn a total of  1,111  from holding Zillow Group or generate 31.35% return on investment over 90 days.

Northern Lights  vs.  Zillow Group Inc

Northern Lights

Northern Performance

12 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Northern Lights may actually be approaching a critical reversion point that can send shares even higher in July 2023.

Zillow Group

Zillow Performance

10 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Zillow Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Zillow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Lights and Zillow

The main advantage of trading using opposite Northern Lights and Zillow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, Zillow can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Zillow will offset losses from the drop in Zillow's long position.

The idea behind Northern Lights and Zillow Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.